"All the wallets need to be open at the same time."
-John Gratiot, Associate VP for Facilities Operations and Management at Dartmouth College

Brown's capital budget primarily focuses on the project's first costs. This budget structure overlooks how initial decisions affect long-term operating costs.

Design decisions impact the cost of operating a building throughout its life span. Because life time operation, maintenance, and salary costs represent over 60% of a buildings total costs, treating the design and construction costs of a new campus building separately from its operational costs can be problematic. If financial pressure on first- cost compels the designer to choose inefficient, cheaper materials or building systems, Brown will ultimately pay greater operations and maintenance costs. Brown's current fiscal policy provides a perverse incentive for inefficiency. Although, exclusively considering first costs may result in an initial upfront savings, over time, increased operating costs will vastly outweigh this initial saving. If Brown were to consider capital and operating costs together, the savings could finance additional campus projects.

Restructuring Brown's capital budgets to reflect the total costs over the life of a building would allow Brown to construct cost-effective, significantly more comfortable and less environmentally harmful spaces.

Life cycle cost (LCC) accounting considers the costs of a product, including capital costs, installation costs, operating costs, maintenance costs, and disposal costs discounted over the lifetime of a product. It is used as a tool to select the best investment option for new construction and to determine the feasibility of alternative systems in building retrofits. Brown should implement LCC accounting methods as part of its regular practice. Other universities utilize cost analysis tools and provide incentive programs to approve building designs and budgets that look beyond first-costs. For example, MIT and Dartmouth have had good experiences using the Buildings Life Cycle Cost (BLCC). Software programs. Princeton University also incorporates contingent infrastructure fees into its capital project costs by requiring $1500/ton of cooling and $1.50/square foot of outside impervious surface that accompanies each new building. Many schools include the cost of high performance consultants, daylighting studies, energy modeling, and commissioning into their initial budget request for each project. Including consultant fees and tools that reflect LCC allow the capital budget to account for some operating costs. Because LCC accounting takes time and adds to the list of architect requirements, it will not be done unless the building clients request it and scheduling supports it. LCC accounting should be written in the scope of the project.

Determining Life Cycle Costs

Utilizing LCC will facilitate Brown's high performance building design (HPBD) program, allowing Brown to enjoy the many associated benefits.

A simple formula for LCC can be found here.

The Institute for Market Transformation to Sustainability has listed several practices for showing the economic benefits of sustainable products, including buildings.

Stanford University has developed its own combination of decision tools and metrics that incorporate LCC in its decision-making process. To compute LCCs, the Stanford Guidelines suggest using cost-benefit analysis tools: 

Internal Rate of Return (IRR) Method :
The IRR Method finds the interest rate for which dollar savings are just equal to dollar costs over the relevant period. This interest rate is the rate of return on the investment. In order for an investment to be desirable, the IRR mist be greater or equal to the investors minimum acceptable rate of return. Brown's average return on endowment over the last 5 years was 7.4%. [1] Many high performance features have better returns than Brown University's endowment. It is time Brown invest in itself.

When a building system or material has an IRR higher than Brown's return on investment from its endowment or the rate at which it can borrow money, Brown should invest in the building technology.

Discounted Payback Method:
The discounted payback method is used to indicate the amount of time at which the investment breaks even. Taking into account the cost of capital, the discounted payback method measures the elapsed time between the point of an initial investment and the point at which accumulated savings, minus other accumulated costs, offset the initial investment.

For a list of things to consider when using financial analysis tools, click here.

If a HPBD feature pays for itself in 8 years or less, Brown University should invest in the cost-efficient feature.

Environmental and Social Costs Analysis Tools
Environmental and social costs are hard to quantify. This is why typical cost-benefit analysis often overlooks these costs. Life Cycle Costing aims to include these costs, especially when planning a high performance building. Fortunately, software and database tools exist to help designers perform LCC Accounting as part of the HPBD program:

• Building for Environmental Economic Sustainability (BEES) Software that measures the environmental performance of building products by using the life-cycle assessment approach specified in ISO 14000 standards.
• ATHENA Life-Cycle Inventory Product Databases ATHENA TM Sustainable Materials Institute world-leading source of data, expertise and tools for designing buildings with the environment in mind
• GreenSpec: The Environmental Building News Product Directory contains detailed listings for more than 1,750 green building products with environmental data, manufacturer information, and links to additional resources.
• Building Life Cycle Costs (BLCC) software : Provides comprehensive economic analysis of proposed capital investments that are expected to reduce long-term operating costs of buildings or buildings systems.
• DOE-2 - An hourly, whole-building energy analysis program that calculates energy performance and life-cycle cost of operation. http://www.doe2.com/
• ENERGYPlus -A building energy simulation program from the creators of BLAST and DOE-2.
• ENERGY-10 - a PC-based design tool, helps architects and building designers quickly identify the most cost-effective, energy-saving measures for small commercial and residential buildings.
• Green Building Advisor- a software program designed to help architects and other building professionals design occupant-friendly and environmentally-friendly buildings

For additional resources, visit Greening the Business Life Cycle

Does it make financial and economic sense to build a High Performance Building ?

The report titled "The Costs and Financial Benefits of Green Buildings " concludes "green buildings may cost more to build than conventional buildings, especially when incorporating more advanced technologies and higher levels of LEED or performance. However, they also offer significant cost savings over time." This comprehensive report confirms that the minimal increases in upfront costs of about 2% to support green design would, on average, result in life cycle savings of 20% of total construction costs. The potential savings is more than ten times the initial investment. "For example, an initial upfront investment of up to $100,000 to incorporate green building features into a $5 million project would result in a savings of $1 million in today's dollars over the life of the building." In this study, the financial analysts performed LCC assuming a 5% real discount rate over a 25 year term with 2% inflation.

Brown should require its design teams to consider the life cycle costs of their decisions. In order to capitalize on these potential gains, Brown University must select design teams with HPBD experience. To read more about design team selection criteria, click here.

[1]Brown Annual Report 2002-2003, ROI of Endowment: